AP US History 7.8: The New Deal

Securities and Exchange Commission (SEC)

Created in 1934, the SEC regulated stock markets and corporate reporting and sought to prevent abuses in the issuance and sale of securities.

New Deal

The New Deal was a series of U.S. economic, social, and political reforms implemented primarily from 1933 to 1938 under President Franklin D. Roosevelt in response to the Great Depression.

What were the three major goals of the First New Deal?

The First New Deal pursued relief for unemployed and impoverished people, recovery of the economy, and reform of the financial system to reduce the risk of another depression.

What economic conditions helped produce support for the New Deal?

Between 1929 and 1933, U.S. manufacturing output fell by about one-third, prices declined by roughly $20\%$, unemployment rose from about $4\%$ to $25\%$, and farm income fell by more than $50\%$.

How did deflation worsen the Great Depression?

Prices fell by about $20\%$, increasing the real burden of existing debts. This made repayment more difficult, weakened borrowers and banks, and contributed to further economic contraction.

Why were the effects of bank failures especially severe before the New Deal?

Deposits were not federally guaranteed, and the United States had no national unemployment insurance or Social Security system. Bank closures restricted access to savings while relief depended largely on families, charities, and local governments.

What was Roosevelt's central economic justification for the New Deal?

Roosevelt viewed the Depression as evidence of market instability and inadequate aggregate demand. He argued that extensive government intervention was needed to stabilize and rationalize the economy.

How did Roosevelt's 1932 campaign define the New Deal?

In accepting the Democratic presidential nomination, Roosevelt promised "a new deal for the American people," including unemployment relief and public-works programs.

First New Deal

The First New Deal, generally dated 1933–1934, emphasized emergency relief, financial stabilization, economic recovery, and experimentation with government intervention.

What made Roosevelt's first 100 days politically significant?

During the first 100 days of 1933, Congress rapidly passed a large number of measures requested by Roosevelt, including banking, relief, agricultural, and public-works legislation. The period became a benchmark for judging later presidents' early action.

Why did Roosevelt initially describe emergency deficits as compatible with fiscal responsibility?

He distinguished between the regular federal budget, which he sought to balance, and an emergency budget used temporarily to fight the Depression. In practice, his administration soon ran deficits to finance New Deal programs.

Economy Act of 1933

The Economy Act attempted to balance the regular federal budget by cutting government salaries and veterans' pensions, including a $15\%$ reduction in veterans' pensions. It reflected early fiscal conservatism within the New Deal.

Why did many New Deal officials reject Keynesian deficit spending at first?

Many economists and Treasury Secretary Henry Morgenthau favored balanced budgets and did not accept government spending deficits as the primary engine of recovery. The New Deal therefore relied on substantial intervention but did not initially follow a fully Keynesian approach.

What is a bank run, and how can it become self-reinforcing?

A bank run occurs when many depositors withdraw funds because they fear a bank will fail. As withdrawals reduce a bank's available reserves, the likelihood of insolvency increases, encouraging still more withdrawals.

How did bank runs contribute to the broader Depression?

Bank runs caused failures, restricted credit, and reduced the money supply. The resulting contraction in economic activity and prices further weakened borrowers and banks.

Emergency Banking Act of 1933

The act authorized the federal government to close banks temporarily and reopen only those judged financially sound, under Treasury supervision. Federal loans could support banks that needed assistance.

How did the 1933 bank holiday help restore confidence?

The government temporarily closed banks nationwide while they were examined. Reopening sound banks in an organized manner reduced panic, and within a month large amounts of hoarded currency and gold returned to the banking system.

Glass–Steagall Banking Act of 1933

The act restricted affiliations between commercial banks and securities firms and limited commercial banks' securities activities. It also created the Federal Deposit Insurance Corporation, which insured bank deposits and reduced incentives for bank runs.

What was the significance of the FDIC for the U.S. banking system?

Federal deposit insurance protected depositors up to a specified limit, reducing the fear that savings would disappear if a bank failed. After 1933, bank failures fell dramatically compared with the 1920s.

Why did the gold standard constrain monetary policy during the Depression?

To maintain the dollar's gold value, the Federal Reserve had to avoid policies that might cause gold outflows. This limited its ability to expand the money supply and provide liquidity during bank failures and deflation.

What monetary changes did Roosevelt introduce in 1933–1934?

The government restricted private gold exports and required the exchange of significant gold holdings for dollars, ending ordinary convertibility of dollars into gold. The Gold Reserve Act then raised the official gold price from $20.67 \to$35 per troy ounce, allowing monetary expansion.

How could abandoning fixed gold convertibility support economic recovery?

It gave the Federal Reserve and Treasury greater freedom to expand the money supply and counter deflation. The policy was associated with a substantial rebound in industrial production.

Securities Act of 1933

The act required companies selling publicly traded securities to disclose financial information such as balance sheets, income statements, and executive compensation. Reports also had to be verified by independent auditors.

Why did the New Deal repeal Prohibition?

Legalizing alcohol production and sales and ultimately ratifying the Twenty-First Amendment generated tax revenue and popular support, particularly in cities and among ethnic communities.

Relief under the New Deal

Relief meant immediate assistance to people suffering from unemployment and poverty. Relief funds also financed public services and infrastructure when declining local tax revenues made state and municipal assistance inadequate.

Public Works Administration (PWA)

The PWA financed large construction projects through private companies, including roads, bridges, schools, hospitals, airports, public buildings, dams, and other infrastructure. From 1933 to 1935, it spent about $3.3 billion on approximately 34,600 projects.

How did New Deal public works address both unemployment and community needs?

Government-financed construction provided jobs and wages to unemployed workers while producing durable infrastructure such as schools, roads, waterworks, sewers, parks, and bridges.

Civilian Conservation Corps (CCC)

The CCC employed young men in manual labor on government lands. It was a relief and employment program that combined temporary work with conservation and public-service projects.

Tennessee Valley Authority (TVA)

The TVA promoted electricity generation and broader economic development in the Tennessee River drainage basin. It exemplified the New Deal's use of regional public planning and infrastructure investment.

National Recovery Administration (NRA)

The NRA allowed industries to establish codes of "fair competition" intended to organize economic activity and improve conditions. It represented the New Deal's willingness to coordinate private industry through federal policy.

Why was the National Recovery Administration declared unconstitutional?

In Schechter Poultry Corp. v. United States (1935), the Supreme Court ruled that the NRA unconstitutionally delegated legislative power to the executive and exceeded federal authority over intrastate activity. The decision ended the NRA.

Agricultural Adjustment Administration (AAA)

The AAA sought to raise farm incomes by controlling agricultural production. It reflected the New Deal's attempt to address the collapse of agricultural prices and rural earnings.

Second New Deal

The Second New Deal, generally dated 1935–1938, placed greater emphasis on job creation, labor rights, and long-term assistance for older people, workers, families, and the poor.

Works Progress Administration (WPA)

The WPA created employment through projects such as bridges, libraries, parks, and other public facilities. It also funded artistic and cultural work, including public murals.

Social Security Act of 1935

The act established old-age pensions, unemployment insurance, and aid to dependent children and others needing assistance. It created a lasting federal social-welfare role.

National Labor Relations Act

The act, also called the Wagner Act, guaranteed employees the right to organize labor unions and bargain collectively. It strengthened workers' bargaining rights and contributed to the growing political importance of organized labor.

Fair Labor Standards Act

The act prohibited oppressive child labor and established a national minimum wage and a standard $40$-hour workweek. It was a major federal intervention in employment conditions.

What were major limitations of the New Deal's economic recovery?

Although the New Deal restored confidence and helped many people find work, unemployment remained above $20\%$ in 1935 and stock prices were still below pre-Depression levels. Most historians consider full employment to have arrived only with U.S. entry into World War II in 1941.

How did the 1937 recession affect the New Deal?

The recession interrupted recovery after several years of expansion. By 1938, Republicans and conservative Democrats were able to block additional New Deal legislation, while the Supreme Court had declared some New Deal measures unconstitutional.

What political realignment resulted from the New Deal?

The Democratic Party developed a New Deal coalition including labor unions, blue-collar workers, big-city political machines, African Americans and other minorities, white Southerners, and intellectuals. This coalition helped Democrats dominate presidential elections into the 1960s.

Why do historians disagree about the New Deal's effectiveness?

Different interpretations emphasize different outcomes: relief for individuals, financial reform, recovery of production, effects on unemployment, and the long-term expansion of government. Debate also concerns whether New Deal policies accelerated recovery, merely halted the collapse, or interfered with a natural recovery.

What was Roosevelt's 1937 court-packing plan?

Roosevelt proposed adding a new Supreme Court justice for every sitting justice over age 70 who did not retire, potentially allowing him to appoint as many as six justices. He claimed the plan would improve the Court's efficiency, but critics viewed it as an attempt to gain favorable rulings.

How did the Supreme Court's response to the New Deal change during the 1930s?

The Court initially struck down measures such as the NRA and the original AAA as unconstitutional. After the Court upheld key labor and Social Security legislation and several justices shifted their positions, the Court became more accepting of federal economic regulation.

Who criticized the New Deal from the left, and what did they want?

Critics such as Huey Long, Father Charles Coughlin, and Dr. Francis Townsend argued that the New Deal did not redistribute wealth or provide enough assistance. Their proposals included wealth redistribution, guaranteed incomes, or more generous pensions and relief.

Who criticized the New Deal from the right, and what were their objections?

Conservatives, business groups, and organizations such as the American Liberty League argued that the New Deal expanded federal power, threatened free enterprise and individual liberty, increased deficits, and gave the executive branch too much authority.

How did New Deal programs affect African Americans?

African Americans benefited from relief and employment programs and increasingly supported the Democratic Party, but many programs permitted discrimination or excluded occupations common among Black workers. Roosevelt also avoided directly challenging segregation because he depended on white Southern Democrats.

How did the New Deal affect women?

New Deal programs provided some employment and expanded women's visibility in government, especially through figures such as Frances Perkins. However, many policies favored male breadwinners, limited women's access to relief jobs, and reinforced traditional gender roles.

What was the New Deal's long-term legacy?

The New Deal expanded the federal government's responsibility for economic security, banking regulation, labor rights, and public welfare. It established institutions such as Social Security and the FDIC and reshaped American political loyalties through the New Deal coalition.

Why did the New Deal not fully end the Great Depression?

New Deal policies reduced suffering, stabilized banks, and helped restore production, but unemployment remained high and recovery was interrupted by the 1937 recession. Full employment came only with the massive wartime mobilization of World War II.